YearEnder 2023- As war chest opens up, its the season of M&A in media and entertainment industry

YearEnder 2023: As war chest opens up, its the season of M&A in media and entertainment industry

Mergers and acquisitions (M&A) have always been part and parcel of the Indian media and entertainment industry. And while 2023 saw its fair share of M&A deals, it is believed that next year will take a bigger turn with two impending deals – Zee Entertainment Enterprises Limited (ZEEL)-Culver Max Entertainment (the erstwhile Sony Entertainment), besides The Walt Disney Company India-Mukesh Ambani owned Reliance Industries which operates Viacom18. Experts opine that mergers are always the beginning of something new, besides it also indicates the maturity of any market. “The seismic shifts in consumer behaviours due to digitalisation have resulted in the need for disruptive innovation. As consumers enjoy ever-greater choices and fewer artificial restrictions, there is a crying need for innovation in content, platform, customer acquisition and pricing to develop the new consumer-first reality. This will need significant investment across talent and tech, and consolidation is one lever that can help achieve this,” Ashish Pherwani, leader- media and entertainment, EY, told BrandWagon Online.Continue reading this story with Financial Express premium subscriptionSubscribe NowAlready a subscriber? Sign in

The impending deals might be concluded in 2024, making it the year of consolidation in the media and entertainment (M&E) industry. There have been multiple acquisitions and investments in the media and entertainment industry in 2023. The consolidation within the space means it would leave the industry with five or six major players.As per the FICCI-EY report, the media and entertainment industry grew by Rs 34,800 crore (19.9%) to reach Rs 2,10,000 crore, 10% above its pre-pandemic 2019 levels.

From time to time consolidation has always played a key role. The intensifying pressure from investors to achieve DTC (direct-to-consumer) profitability is a catalyst for further consolidation activity, especially for the group of relatively smaller players that rely on cash flows generated by fading linear assets, as per the FICCI-EY report. In the over-the-top space, one such example is the impending acquisition of MX Player. As per several reports, Amazon Prime Video is also in the race to acquire the platform. It is believed that strategic combinations will simplify the streaming marketplace for consumers, generate cost savings that can be utilised to fund investment in better content, marketing and technology, and rationalise an industry landscape that is driven by global heavyweights today. “Linear television in India continues to hold significant value, not only due to its profitability but also because the low-cost local IPs featuring recurring episodic content have now found a strong resting place on streaming. The ongoing merger between Sony and Zee, along with the potential acquisition of Disney India by Reliance, if realized, will allow industry incumbents to achieve scale, enhance profitability, and maintain competitiveness,” Mihir Shah, vice president, Media Partners Asia, said.

To be sure it hasn’t been a smooth sail for ZEEL. While the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Competition Commission of India (CCI) approved the deal, the Securities and Exchange Board of India (SEBI) barred Punit Goenka and Subhash Chandra from holding key positions in the merged entity in its interim order. However, the Securities Appellate Tribunal (SAT) declined the interim order by SEBI and asked for a more suitable order in two weeks. SEBI again barred the duo from holding key positions in the merged entity despite the merger getting approval from the National Company Law Tribunal (NCLT). SAT set aside SEBI’s order, overturning the ban imposed by the market regulator.

As RIL and The Walt Disney Company move closer to a merger, it is expected that the deal will face its share of difficulties. As these consolidations pick up pace, the industry will have five or six major players post the mergers and partnerships. The mergers would result in a duopoly in the M&E industry, given their umbrella of channels and digital platforms. While Sony-Zee’s merged entity would own more than 70 channels and two film studios, RIL and Disney Star’s merged entity would create India’s largest media house, owning more than 70 television channels across eight different languages from Star India along with 38 channels from Viacom18, a subsidiary of RIL. Moreover, the merged entity would also own two digital streaming platforms, Disney+ Hotstar and JioCinema, as per a recent report by Growthpal, an M&A deal sourcing platform.

Industry experts opine that the mergers would result in intense competition between the major players, further leading to innovation in content, technology and services. Furthermore, the entities might invest in immersive experiences, better content recommendation engines and better content delivery mechanisms. Experts highlighted that the duopoly might bring an end to the aggressive price wars, minimising the negative effect on the industry’s financial health.

However, industry experts quickly pointed out that the duopoly could limit choices for consumers as the two merged entities gain control and pricing power over the industry. Limited competition would lead to limiting content choices, a lack of options, and perspectives for consumers. “The mergers of Sony-Zee, and RIL-Disney Star would most likely create a duopoly in the M&E ecosystem, given their umbrella of channels and digital platforms. Out of the two, the RIL-Disney Star entity would be larger, but Sony-Zee would still boast an impressive portfolio. As outlined previously, both merged entities would have a strong domestic television channel and streaming platform portfolio,” Maneesh Bhandari, founder and CEO, Growthpal, a merger and acquisitions deal sourcing platform, said.

Deals in 2023

As the year comes to a close, the biggest deal in the M&E industry was Saregama India acquiring a majority stake of 51.82% in Pocket Aces Pictures for Rs 174 crore, with plans to potentially increase its stake to 92.6% in the future. An additional investment of Rs 15 crore has been made through the primary purchase of shares, according to a report by Growthpal.

Acquirer nameAcquiree NameDateDeal TypeDeal SizeSaregamaPocket AcesSeptember 2023AcquisitionRs 174 crorePlanetCastDesynovaMarch 2023AcquisitionNDSurinder FilmsAddatimesMarch 2023AcquisitionNDAdani Group (RRPR Holding)NDTVMarch 2023InvestmentRs 602 crore (for 27.26% stake)Secondary MarketViacom18August 2023InvestmentRs 950 croreNBCUJioCinemaMay2013PartnershipMulti-year PartnershipINOXPVRFebruary 2023MergerMinistry of Information and BroadcastingAmazon IndiaApril 2023PartnershipNetflixYash Raj FilmsSeptember 2023PartnershipFundamentum International Finance CorporationKuku FMSeptember 2023InvestmentRs 207 crore ($25 million)AMG Media NetworkIANSDecember 2023Acquisition50% stakeSource: Growthpal

Other major deals include Adani Group acquiring a stake of 27.26% in NDTV for Rs 602 crore. The acquisition of the 27.26% stake drove Adani’s combined total stake in NDTV to 64.71%. Additionally, AMG Media Network, a wholly-owned subsidiary of the Adani Group, acquired a 50% stake in IANS. Viacom18 also raised Rs 950 crore in 2023 as James Murdoch and Uday Shankar-promoted Bodhi Tree acquired an additional 2.89% stake in Viacom18. Furthermore, PlanetCast acquired Desynova and Surinder Films acquired Addatimes for a non-disclosed amount.

Partnerships were big in 2023 as NBCUniversal signed a multi-year partnership with JioCinema. Meanwhile, Netflix announced its partnership with Yash Raj Films in September this year. Speaking of mergers, PVR completed its merger with INOX in February. “Established companies are actively adopting technology-driven strategies through smart investments and acquisitions. The primary objectives are to bolster their market positions, tap into diverse user bases, and enhance their digital footprint to meet the growing demand for varied content. These initiatives also involve incorporating cutting-edge technologies, ensuring a prioritised tech-centric approach in delivering media solutions. In essence, these strategic moves highlight the industry’s acknowledgement of the critical need to embrace technology for sustained competitiveness and to align with the evolving preferences of contemporary audiences,” Bhandari added.

What if…..

While the talks progress for the Sony-Zee and RIL-Disney Star merged entities, there can always be a plot twist in the story of these four media companies. Reliance allegedly tried to acquire ZEEL in 2021. ZEEL, however, denied any talks of a potential merger with Viacom18. Viacom18 was also briefly linked with Culver Max Entertainment’s Sony Pictures Network India. According to industry experts, the deal between ZEEL and Viacom18 was expected to be a straight share swap deal with no cash involvements. The Zee-Sony deal has been hanging in the balance for a long time now as the merger was announced in 2021. Zee asked for an extension of the deadline of December 21 on December 17. Even as it is believed that the deal will go through, one can never say never. Naysayers opine that if the merger of ZEEL and Sony falls through, Viacom18 might be interested in the Punit Goenka-led media group as it was two years ago. ZEEL’s net profit increased nine percent to Rs 123 crore in Q2, FY24 grew from Rs 112 crore in Q2, FY23.

Meanwhile, The Walt Disney Company India has been struggling to maintain profitability. The company’s net profit shrank 30.62% to Rs 1272.15 crore in FY23 from Rs 1833.81 crore in FY22, as per regulatory filings sourced by Tofler, a business intelligence platform. Bob Iger, CEO, The Walt Disney Company, emphasised the focus on digital platforms, during the analyst call. The merger between ZEEL and Viacom18 would leave Sony in a precarious situation. Disney has been weighing strategic options for the business including an outright sale or setting up a joint venture, as reported by Bloomberg. Disney Star recently lost the streaming rights for the Indian Premier League (IPL) to Viacom18. It retained the digital rights of ICC cricket events for four years. The merger of Sony and Disney Company India would result in an entity with global reach and significance. Sony would get access to sports content offerings of Disney Star India like the English Premier League and ICC cricket tournaments as well as its entertainment offerings. In contrast, Disney Star would get access to sports offerings like Champions League football as well as its reality TV entertainment offerings. If the entities do merge, both companies would also be merging two of the biggest film studios. Moreover, the entities would have access to each other’s digital streaming platforms, namely SonyLiv and Disney+Hotstar.

Disney Star has inked a non-binding pact with Mukesh Ambani’s Reliance Industries Limited for the meantime, as reported by Economic Times.“ The entry of global tech giants such as YouTube, Meta, Netflix, and Amazon has played a pivotal role in expanding India’s video market, now estimated at US$13 billion. It is noteworthy that the combined market share from the two potential mergers will be less than 40% of the total video market. Nevertheless, it is imperative for traditional and domestic companies to join forces and leverage their local IPs to thrive in the new age of streaming,” Shah noted.

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